Amazon enters student loan business in partnership with Wells Fargo

Dan Freed

3 Min Read

(Reuters) - Amazon.com Inc is entering the student loan business in a partnership with Wells Fargo & Co, offering cheaper rates for loans to Amazon customers who pay for a “Prime Student” subscription.

Pens and paper with the Amazon logo are seen at the logistics center in Brieselang, Germany November 17, 2015. REUTERS/Hannibal Hanschke

The deal calls for Wells Fargo to shave half a percentage point from its interest rate on student loans to Amazon “Prime Student” customers, who also get benefits such as free two-day shipping and access to movies, television shows and photo storage.

“Amazon’s looking for increased membership in Student Prime. That’s what they want out of this deal,” John Rasmussen, head of Wells Fargo’s Personal Lending Group, said in an interview. “What we’re looking for is exposure to our products and services and awareness. That’s the extent of the relationship.”

An Amazon spokeswoman sent a brief statement but did not respond to questions about its strategy or the terms of the deal.

Wells Fargo charges between 3.39 percent and 9.03 percent for a variable-rate student loan, and from 5.94 percent to 10.93 percent for a fixed-rate loan, according to rates listed on its website Thursday.

A borrower who would ordinarily qualify for a 3.39 percent rate would be able to get a 2.89 percent rate by paying for a Prime Student subscription, a bank spokesman confirmed.

Amazon agreed not to work with other student lenders in similar deals, though Wells Fargo would be able to offer similar incentives to customers of Amazon competitors, Rasmussen said.

Rasmussen said Wells Fargo does not compensate Amazon as part of the deal, nor does Amazon receive any compensation from Wells Fargo.

The third-largest U.S. bank by assets, Wells Fargo had $12.2 billion in student loans outstanding at the end of 2015, compared with $11.9 billion at the end of 2014. One of the largest private student lenders, the bank sold substantially all of its government guaranteed student loan portfolio in 2014.

While government loans tend to have high default rates, lenders are attracted to the private side of the business because they can offer better pricing to more creditworthy borrowers, Citizens Financial Group Inc Chief Executive Bruce Van Saun said in an interview Thursday.

Still, JPMorgan Chase & Co decided in 2013 to exit the student loan business altogether, saying it was too difficult to compete with federal government programs.

Reporting by Dan Freed in New York; Editing by Bill Trott and Alan Crosby